Curiouser and curiouser as the three sisters disconnect

As we move to the end of another trading month a feature now building in US equity markets is the apparent disconnect between the three principal indices, and in particular the divergence between the NQ, which appears to be moving South, and the others which are moving North. This divergence also reflects an additional aspect of this apparent disconnect, and indeed one I have highlighted before, namely the lack of momentum in the NQ, which has trailed in the wake of both the ES and the YM as they have continued to rise ever higher, dragging the NQ in their wake. But it is not simply a lack of momentum that has characterised the NQ, but also the fact the index has failed to reach the deep congestion region of 2015 during which we saw the NQ reach a high of 4726. This is unlike the ES & YM who have managed to reach and probe their equivalent congestion zones.

If we start with the YM, the significant price region was the break and hold above the 17,680 region which marked the ceiling of stubborn resistance created during the extended congestion phase of last year. Once through this area, the index was duly given a springboard for the next leg up towards 18,000, and a move into new high ground – something which still awaits. However, with Janet’s comments suggesting a more doveish approach, the YM has pushed higher once again and is now approaching this psychological level where price resistance is starting to build. However, in terms of the volume point of control we only have a low volume node ahead, and provided volume continues to build, as it is at present, and provided the old high of 18,083 is taken out,we should see a continuation of the longer term bullish trend.

Moving to the ES, the daily chart is almost a carbon copy of the YM. The high here sits at 2105, and like the YM provided this is taken out, then a strong platform of support will be in place for a continuation higher.

And so to the NQ, which looks very different to its siblings, and the contrast could not be more startling. First, the index failed to even penetrate the deep congestion region, which has been taken out by the other two, with the index holding and failing to move above the 4550 area, and denoted with the red dashed line on the accumulation and distribution indicator. Second, whilst the other two indices have paused in a congestion phase, the NQ has actually reversed, gapping down through the support platform in blue at 4459. Finally, and perhaps most oddly of all, is the fact that under normal circumstances we would expect to see the NQ leading the way as the economic cycle moves from deep recession into early expansion. No doubt the FED will have taken note, and perhaps this is one of the metrics that is causing some anguish and concern amongst the more doveish members. And as Alice said from Alice in Wonderland….. ‘curiouser and curiouser’!

By Anna Coulling

Charts by NinjaTrader and indicators from Quantum Trading.